Beijing's building frenzy may have sting in tail for the dragon

By William Mellor and Allen Cheng

February 7, 2006 — 11.00am

FROM his 16th-floor office on Beijing's Avenue of Eternal Peace, distressed-debt specialist Jack Rodman has a grandstand view of the $US160 billion ($A225 billion) of building that will add the equivalent of three Manhattans to the skyline by 2008, when China's capital hosts the Olympic Games.

To the east, a new central business district is rising near a futuristic TV tower designed by Dutch architect Rem Koolhaas. To the west, a Chinese Wall Street is taking shape around the Bank of China headquarters, created in 2001 by Chinese-American architect I. M. Pei.

Across the city, work is under way on luxury apartments, subway and rail lines, ring roads, Olympic venues and an airport terminal that will be bigger than all five at London's Heathrow. Already completed is the 455,200-square-metre Golden Resources Shopping Mall.

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"The scale of development here is unprecedented anywhere in the world," says Rodman, 59, a partner at Ernst & Young LLP, the second-largest US accounting firm.

So are the risks for property speculators, Rodman says. "When I look out of my window at all those construction sites, I see a sea of non-performing loans looming large on the horizon," he says. "The numbers defy logic."

He estimates more than 90 million square metres of offices, shops and apartments will come on to the market before the Olympics — more than needed.

Many of the buildings are not up to the standard demanded by international companies moving to Beijing, says James Quille, 53, chief executive officer of Bermuda-based Macquarie Global Property Advisors.

"There's a lot of stock being developed that will be obsolete before it is completed," Quille says. But he says there are profits to be made from the good-quality buildings, and his fund has allocated $600 million to acquire property in Beijing and Shanghai.

The International Olympic Committee is also predicting profit from the 2008 Games. The total may exceed the record $US224 million made by the 1984 Olympics in Los Angeles, according to IOC officials. The profit will come from broadcasting and licensing fees and at least $US1.87 billion from international and domestic corporate sponsors.

Corporate sponsors for the Games are attracted by the possibility of advertising to China's population of 1.3 billion.

China's economy last year surpassed Britain's to become the world's fourth-largest. It is using the Games to speed up Beijing's transformation into one able to keep pace with the world's fastest-growing major economy.

"This is an amazing opportunity for us, but we feel a really big responsibility," Huang Yan, 41, deputy director of the Beijing Municipal Planning Commission, says.

"The pressure is unbelievable because everything is going so fast. You don't have too much time to make decisions. A lot of things we could do better."

There is still time for US and other foreign companies to profit from the investment, says Craig Allen, chief of the US Commercial Service at the American embassy in Beijing.

While most of the building contracts have been given to groups led by Chinese state-owned companies, Allen says the Chinese will put more contracts up for bids in the first half of this year, ranging from subway signalling to traffic management and communication systems.

In 2004, the city was building venues for the Games so quickly Hein Verbruggen, the International Olympic Committee executive overseeing Beijing's preparations, says he had to ask organisers to slow down.

If the structures were finished too early, Verbruggen says, they would cost more to maintain and could even depreciate — a problem, given that some of the Olympic buildings will be converted into luxury apartments and sold after the Games.

The only parts of the city immune from the transformation are the Forbidden City, which contains the palaces of China's Ming and Qing dynasty emperors, and the red-walled Zhongnanhai compound where President Hu Jintao and his Communist Party comrades live and work.

Even the area around Tiananmen Square, where in 1949 Mao Zedong proclaimed the People's Republic of China from atop the Gate of Heavenly Peace, and where the 1989 crackdown on pro-democracy protesters took place, has not avoided the construction frenzy.

Just behind the monolithic Great Hall of the People, the tear-shaped $US325 million National Grand Theatre, made of titanium and glass and designed by French architect Paul Andreu, is taking shape amid an artificial lake. Residents of Beijing have nicknamed it the Egg on the Water.

Olympic Park, the main venue 10 kilometres north of the city centre, has been chosen to straddle the north-south axis of the ancient city that also passes through Tiananmen Square and the Forbidden City.

Despite the slowdown order, about 7000 workers are toiling in three shifts, 24 hours a day, on the $US382 million, 91,000-seat National Stadium. The venue, designed by Switzerland-based architects Herzog & de Meuron Architekten and Beijing-based China Architecture Design Institute, features intertwined steel struts resembling the wooden twigs that make up a bird's nest.

The stadiums are just a small part of the overall spending.

From 2002 to 2008, the Chinese Government is expected to pump $US60 billion into construction, according to Business Beijing, a magazine sponsored by the city government's information office.

That's four times the amount London will spend to improve itself for the 2012 Games, according to organisers.

"I can't think of another city anywhere in the world that has embarked on such an infrastructure program," Macquarie Global's Quille says. "In more sophisticated, mature markets, they often can't build one tunnel or one rail line without significant cost blow-outs."